How much does it cost to build a yacht cruise?
Part 2 of the yacht cruise business
Hello everyone, happy 4th of July weekend to those who celebrate.
Last week I was curious to know if you would buy a branded residence. 67% of you who responded to the poll voted no, which leaves a third who would buy one.
I’ve discussed branded residences on The Stanza over the years and surprisingly found that the general audience sentiment behind them was lukewarm, especially when compared to that of hotels or members clubs. But, the idea behind branded resi makes practical sense - both from the developer’s and the buyer’s perspective. For developers (particularly in the US), condo sales in theory fund the construction of the hotel, while for buyers who spend less than 183 days in the calendar year in certain jurisdictions would appreciate the convenience of the “lock and leave” lifestyle. That being said, the bigger question mark for me is: what is the intellectually honest way to size the
demand to pay a brand premium above comparable condos, likely with similar quality finishes? Some will point to the increasing wealth accumulation in the US alongside more wealthy people choosing to live an untethered lifestyle. But those are macro tailwinds that don’t necessarily translate cleanly to branded resi demand.
In reality, even if you rent out your residence while you’re gone, you’re still paying a management fee to the brand for that service. To me, this is the only real marginal benefit and convenience factor. I’d also posit that very few brands even merit a use case for branded resi - Aman and Four Seasons being the only two I’d personally consider as a buyer prioritizing hard product and service quality.
If you’re new here, or want to catch up on the best of The Stanza, I’d recommend that you start here.
In today’s newsletter:
A ship at year ten has no land under it, no comp set, and no obvious buyer, so what’s the liquidity play?
Why does the smallest ship in the category cost the most per bed to build?
If ships are not technically finite assets, what actually protects this category from competition?
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Three weeks ago, I wrote about the emerging category of yacht cruises — where the guest demand comes from and what’s the long term value creation opportunity for investors. The most common follow-up questions centered around what it takes to actually build these ships and how to contextualize the business. The instincts that serve a hotel investor, such as per key build costs or exit comps, either don't transfer to a ship or transfer in ways that mislead. For example, a vessel that costs more per key than any hotel ever traded can still be rationally built. This week’s letter serves as a primer: what a ship costs to build and why, which of your land instincts to keep and which to retire, and what the people writing these checks are actually underwriting.
“Per-key” doesn’t translate from hotels to ships
Orient Express spent roughly €500M building The Corinthian, a ship with 54 suites. That’s over €9M per key, several multiples of what some of the most expensive hotel transactions on record have traded at.
